Inflation Sends Rich Consumers To Walmart, As It Is 'Turning The Tables' On Amazon

The persistence of inflation makes wealthy consumers more price-sensitive, leading them to seek bargains at Walmart, which is gaining an edge over Amazon in shopping convenience.

For years, Walmart was known as the shopping destination for low-income Americans. The retail giant's vast network of neighborhood stores offered these shoppers everyday low prices and convenience that no other retailer could match.

Then came Amazon to invade Walmart's market and turn its extensive store network into window shopping for both low-income and high-income customers.

In recent years, Walmart has been fighting back, "turning the tables" against Amazon. It spent heavily to recruit and retain top software development talent to improve its Internet site.

Then, it acquired digital properties to expand its online sales scale and scope and develop a version of Amazon's Prime program.

In addition, the retail giant launched Walmart Connect, a digital advertising platform that enables advertisers to access Walmart's online properties, including its website, mobile app, and other digital channels, and target the company's large customer base.

More recently, Walmart bought VIZIO HOLDING CORP to accelerate Walmart Connect further in the U.S. and begin to look like Amazon, the online start-up that sought to chip its market away.

Meanwhile, Walmart is leveraging its extensive network of brick-and-mortar stores to establish itself as a leader in a new trend known as unified retailing. This trend seamlessly merges online and offline sales while integrating all channels and touchpoints for a cohesive shopping experience.

For instance, Walmart's customers can order merchandise online and pick it up from a local company store or have it shipped to them for same-day delivery. This convenience needs to be added to Amazon, at least in locations where it doesn't have a brick-and-mortar presence or a warehouse.

"I guess Walmart has come to resemble Amazon more as it expands its third-party online marketplace, establishes a free delivery subscription service, and looks to advertising as a growth driver," said Carol Levenson, CFA, Director of Research, Gimme Credit LLC.

"On the other hand, however, Walmart is still mostly a grocer, and this is an area where its vast global network of brick-and-mortar stores give it a tremendous advantage over Amazon," Levenson added.

In a statement following the release of first-quarter financial results, Walmart's CEO and president, Doug McMillon, explains what that means what the retail giant's transformation means for shoppers.

"Around the world, our goal is simple - we're focused on saving our customers both money and time. It's inspiring to see how our associates are simultaneously executing the fundamentals and innovating to make shopping with us more enjoyable and convenient. We're people-led and tech-powered, and that combination is propelling our business," McMillon said.

Walmart's beat of Amazon in convenience has attracted to its network an unusual crowd: wealthy Americans looking for bargains in an inflationary environment.

"With the third year of high inflation, consumers are becoming increasingly price conscious," Dryden Pence, CIO of Pence Capital Management, said, adding, "Walmart hits the sweet spot by offering both convenience and quality while making several changes to better appeal to more affluent households – with households with more than $100,000 in income now being one of their largest contributors to growth."

Levenson sees the search of affluent consumers for bargains as part of a broader trend. "Interestingly, its growth was led by higher income shoppers (MCD is seeing something similar)," she elaborated. "It's brilliant that Walmart is upgrading some of its food offerings to appeal to these shoppers. Its strong position in groceries and essentials and its value proposition have insulated it somewhat from the continued cooling of demand for discretionary goods."

Pence believes that shopping at Walmart is also more convenient than shopping on Amazon in a pinch. "While Amazon has local fulfillment centers that help achieve same-day delivery, Walmart is leveraging its massive store footprint to achieve this," he added.

(Disclosure: The author owns shares of Walmart and Amazon.)